Materials cost for sixth-gen iPod nano estimated at $43

A breakdown of the sixth-generation iPod nano's parts by iSuppli places the estimated material cost at $43.73.

Market research firm iSuppli sees the newest iPod nano, which was announced on Sept. 1, as further proof that sometimes "less is more." The device exhibits "remarkable economy in terms of its size, feature set and Bill of Materials (BOM)," wrote iSuppli in its BOM report on Monday.

iSuppli's teardown analysis claims that the parts in the 8 GB version of the sixth generation nano cost $43.73. Manufacturing costs are estimated at $1.37. Based on iSuppli's breakdowns of all six generations of the iPod nano, the current generation ranks as second least expensive.

Instead of piling on features, as so many brands do with their latest products, Apple with the sixth-generation iPod has maintained or even removed some attributes in order to fit the form factor and function desired, said iSuppli principal analyst Andrew Rassweiler. This has enabled Apple to offer the smallest iPod including a touch screen, while keeping component costs to a strict budget.

The touch-screen and memory comprise more than half of the materials cost, according to the report. Toshiba provides the Flash memory, while Samsung provides the RAM and the application processor.

If iSuppli's estimates are to be believed, the lower cost of materials and manufacturing leaves wider profit margins for Apple. The sixth generation iPod nano's material and manufacturing costs make up 30 percent of the device's retail price, compared to 33 percent in previous years. The 8 GB model retails for $149.

According to Apple, these types of cost breakdowns should be taken with several grains of salt. During the Cupertino, Calif., company's Q3 2010 earnings call in July, chief financial officer Peter Oppenheimer disparaged component cost estimates by third-party companies like iSuppli.

"Let me begin by suggesting that you dont put a lot of credence in these third-party reports that you see. Its always amazing to me the cost categories and the components that never seem to make it into the reports," Oppenheimer said in response to a question about the cost structure of iPhone 4 in relation to gross margins.

Anyone who has ever started a "successful" business, or been involved in budgets would be familiar that "Supplies and materials" would be less than 30% of the total budget. In some fields, this might even be less,

In academic research for example, hired labor, would be as high as 50-75%, even if the salary charged for the principal investigator was only minimal (or none at all when the institution already pays for the salary of the faculty or senior staff). Supplies costs ranges between 20-30%, in the direct costs.

The indirect costs (which would be calculated separately by funding institutions) would be between 50-90%. Some prestigious institutions were in the news in previous years, because the indirect costs exceeded 100% of the direct costs, and actually approved by federal institutions, like the National Institutes of Health (NIH), National Science Foundation (NSF), etc., However, the small and not so rich private foundations (that also provide research grants) place a cap. At most 30% indirect cost. That was why, in places like Harvard University, especially their teaching hospitals (llke Massachusetts General Hospital), they may caution their senior staff to refrain from sending too many grant proposals to small foundations. [You would likely get a denial from the Chairman of the Department, or the Grants Office that such policy is in place.]

The significance of funding from small funding agencies, with caps on indirect costs? To calculate indirect costs, federal funding agencies apportion space utilization in a research institution, based on the area actually allocated for research (considering all sorts of parameters, like students and staff involved in research).

Why does this allocation matter?

Because the overall outcome is that the "total cost" $50,000 year grant from a small foundation may occupy the same research space, as a $150,000-500,000 total cost grant from agencies, like NIH, NSF. The more high caliber instititutions get funds from smaller foundations, the less space they can allocate to higher funding institutions.

Why are the "parent institution" so concerned about indirect costs?

Because the total amount goes to the instittution (not to the researcher's lab) to cover, as the name implies, :"indirect costs" incurred by the institution -- auxillary staff to support research, and promote research within the institution, health and retirement benefits. If the institution think they can justify it, the cost will be included. Obviously, these are very complex, and negotiated in advance with NIH, NSF, by each institution, on a long term basis -- but still must be documented.

Some more inquisitive reporters got lucky sometimes. If my memory serves me, I think Stanford University was caught charging the "cost of flowers" by the Administration. And, they had to refund the money. But, of course, they will find a way to recover them in some other ways.

There are similar indirect costs, and even more for "profit companies", and more, like paying taxes, increased legal fees, liability insurance, advertisement, etc. -- apart from the more apparent costs, like health insurance benefits, Social Security, Medicare/Medicaid, etc. share of the company. Then, there are in-house research costs, licensing fees,

The salaries of staff in "profit companies" would be way higher than those paid to research staff of research laboratories -- students, post doctoral fellows (some come with their own fellowships), resident researchers (usually paid by the Medical School), visiting researchers, etc.

Considering all these, in research labs, while the direct cost for "Supplies and Materials", excluding equipment, may range up to 30%, this would be down to 10-20%, after factoring the indirect costs.

Since companies, like Apple are paying higher average labor costs, than research institutions, the actual percentage cost for "Supplies and Materials".

Factor in also the "million dollars" options and recruitment incentives that Apple has been paying its star employees. Steve Jobs may be receiveing a $1 annual salary, but Apple still pay part of thee costs for his private jet. Then, all those cost to stage their "announcements". A few thousand dollars here, a few thousand dollars there, etc. And the overall costs that have to be charged indirectly would even increase.

Finally: "To paraphrase one of the posters here. There is no such thing as an overpriced product to consumers who find value to what they bought."

Why in the world would someone pay a $500-1,000 meal at some restaurants, when another (e.g., a young kid) gets as much satisfaction, if not more, with those "99cents***" burger at a MacDonald?

I guess there aren't any costs involved with designing the new nano. Who knew!

Heh...reminds me of an idiot know-it-all friend I have who once went on a rant about how OS X, Windows, Microsoft Office, etc. cost well over $100 when "packaging and materials can't be more than a few bucks."

Who knew some guy just wrote the code for it in an afternoon and burned the CD's.

I wish there was early sales data like we seem to get with the iPhone and iPad all the time. I wonder how this little guy is doing. Personally, I feel like its far too expensive for a what crippled and near worthless product it is.

So sad. They had the right idea, the final version just sucks. And this replaced a better product, with better value. So weird.

Guess this was Apple's way of saying: "Those who used to buy the iPod nano, have now graduated to the iPod touch, as it's a better device, and better investment."

Does anyone know the current tear-down cost on 16GB, 32GB and 64GB NAND memory?

That's the only price differentiator in the nano, touch and iPad lines, and it looks like Apple has room to create a $349-$399 price point for a 7-inch iPad without killing the margins on the nano or the iPad.

Does anyone know the current tear-down cost on 16GB, 32GB and 64GB NAND memory?

That's the only price differentiator in the nano, touch and iPad lines, and it looks like Apple has room to create a $349-$399 price point for a 7-inch iPad without killing the margins on the nano or the iPad.